Gold price momentum is building as we move into the weekend, with a fading dollar and slumping stock market giving the yellow metal a burst of energy.
Yesterday (Thursday) saw US stocks weather their worst day of trading since the earliest days of the pandemic back in 2020, with warning signs of a recession continuing to trill loudly and supply chain bottlenecks further constraining retailers and manufacturers.
The S&P 500 fell again, with 98% of stocks declining and the Index overall losing 4% on the day. This marks the biggest loss endured since June 2020. It is now very close to bear territory after a torrid month, with analysts now also concerned that clear signs of slowing growth are emerging. State Street Global Markets head of macro strategy Michael Metcalf told the Financial Times, “There’s a beginning of a deterioration in the growth story and it’s started to get picked up in earnings.”
Leading the losses were retailers like Target and Walmart, who experienced their worst day since 1987. It was a similar dour picture elsewhere, with the Nasdaq shedding 5%, the Stoxx 600 in Europe shedding 1.1% and the FTSE 100 down 1.8% – a drop which saw £40bn ($49bn) wiped off company values.
The flight to safety comes as inflation continues to run hot, with the UK hitting a grim 40-year high record earlier this week and the Federal Reserve across the Atlantic signalling that sharper rate hikes are very much on the table. With prices still increasing, the yield on the 10-year US Treasury has fallen and the dollar is also fading as recession worries begin to take root.
Fiera Capital says this kind of environment has been on the cards for a while. Portfolio manager Candice Bangsund said, “We’ve been of the view for some time that earnings expectations are overly optimistic given the inflationary environment, which is likely to squeeze profit margins.”
Of course, this is good news for gold which historically takes the lead in times of economic difficulty. Already, the yellow metal is capitalising on the stock market struggle and has been steadily adding value. The gold bulls raced to add £20 ($25) to trade around £1,474 ($1,841). Don’t delay.
